Thoughts, Trading

Trading Around High Volume Areas

When there is a bout of heavy fighting between bulls and bears, characterized by high volumes being transacted at a particular price area or level, here are some points to look out for. These are from my observations trading the Nikkei in the T session, but most of it would be applicable to other markets.

  • If the big fight occurred in the early part of the session, you would expect some resolution during the session, i.e. eventually one side puking.
    • Note that this needs to be confirmed by subsequent price action. Do not assume that once price goes down slightly after the fight you can immediately short, or that you can immediately go long once price is above the fight level. Big boys do not just fight once and give up, they keep fighting until they assess that they can’t win at that moment, then they flip direction, drive price one way (i.e. do a rinse), before deciding if they want to fight again later.
    • After the puke, the losing side may still try to run price back to the original big fight level. The rinse-and-repeat is a common tactic to replenish firepower before another push.
    • You would typically get alerted to this when you see big lots keep being thrown at a level that just won’t budge (strong defense), followed by some light offense by the defending side. If the attacker crumbles (i.e. a few levels are taken out in reaction to the light offense), it usually means that the attacker was just testing the level. If the attacker stays firm, you know that both sides are prepared to fight.
  • If the big fight occurred towards the closing time of the session, you would expect price to stay around the fight level until the close.
    • With the close looming, there isn’t much time left for fighting, so usually both sides just let the market close around the level.
    • This does not apply for those straight uptrend or downtrend days, where there will typically be pukers towards the close. This is especially so for down days, where there are usually 2-3 levels of puking.
  • If price comes around to revisit a previous high volume area, you would expect some resistance / support at that area.
    • This is more true for recent high volume areas compared to high volume areas further back.
    • After price has pushed away from a fighting level, the side that pushed price away would naturally defend their positions. Other people would also see that in advance, and would not join the attack, preferring to stay on the sidelines until the attacker has broken through before joining again.
    • For the retail folks, there will always be the ‘breakeven traders’ that will take action as well as those that see it as another chance to hitch on the ride that they had just missed.
    • The big boys know the charts that they generate. They want other traders to join their cause and to do that, the bulls will defend support levels, and the bears will defend resistance levels. When they relax on the defense, you know that they are taking to time to build a bigger position than usual.

I know that Market Profile has similar concepts such as POC and how “fair value” attracts price and all, but thinking of the market as a bunch of big boys with egos and emotions who are playing to make money the easiest way they can, works well for me.




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